“Don’t Panic” - Part II

Practical aspects - on how to navigate through choppy financial markets

In our last short paper on “How to navigate choppy financial markets”, we suggested to follow four principles:

First, to define the portfolio composition and exposure levels per asset class.

Second, to implement a well-prepared process for managing exposure in a crisis (being large or small) - either by hedging or by just buying or selling the assets.

Third, instead of moving in and out of choppy markets, to define target exposure by an appropriate risk measurement methodology, which has been thoroughly tested.

And fourth, to continuously manage exposure along the implemented process.

From the feedback we received so far, one of the most prominent questions was:

“Which risk measurements do you use to control the hedging process?”

In this short paper we compare some common market risk measurements with stability analysis and discuss the results